First, ~46% of it is gone in taxes including federal tax (~25%), state tax (~8%), FICA (~4%), and sales tax on everything you eventually use the money for (~9%).
So that's 162K left. Not a lot to pay sky-high rents, car payments, insane medical bills despite insurance, lawyers to fight said bills, save up money for parental elderly care, save up money for yourself for retirement, etc.
And yeah, having kids on that money? Very difficult.
If you're not in the bay area, different story, it's a very nice income. But they probably won't give you that package if you're remote.
And if you're in the bay and not planning on having kids, it's an okay salary.
Yes, it's a huge problem. There are greedy people buying more houses than they can use as investment vehicles, renting them out to everyone else who can't afford housing at unaffordable prices, and that ultimately increases prices across the board on everything because local businesses and service industry also need to rent commercial space and personal space -- and that ultimately comes from greedy landlords who keep lobbying against building more housing.
Most of SF is NOT living a life that I would call "livable". Having roommates in late 30s out of necessity rather than choice, and working out of a bedroom with no sunlight and not retrofitted for earthquake and fire safety and removed of mold spores isn't even ethical IMO, but that's the reality that lots of people live in.
You surprisingly (considering you're making 5x the median household income for the US) end up having to lightly adhere to some sort of budget. With car payments, sending money to your family, and local inflated prices, it's easy to find yourself not saving enough for early retirement
I think if you just don't buy new cars or first class international plane tickets you can get by pretty comfortably though. I saved $100k a year with a pre-tax total comp of $350k for a few years in the Bay Area
You can get legal insurance as well and get all that nonsense done for $20.
Elderly people can go retire in Mexico and have a better life than whatever is possible in the US, in towns full of other retired people.
Fed + fica is 21% combined. State is 6%. Imputing sales tax doesn't make sense either - rent isn't subject to it.
Take home is a bit north of $200k. Yeah, that's affluent here. Not upper class, but solidly upper middle.
>save up money for parental elderly care
Sorry, what? Your parents? I can see that paying for 3 generations on one income can be hard.
1. It's not as bad as you describe it. Not for tech workers, at least. Please go to the lady working at Walmart and ask her about her income and living arrangements before you rant about $300k a year.
2. Of course it's by choice. Nobody is forced to live in SF or the bay area. Especially not people in tech.
I was writing mean rates, not marignal.
For 300K in CA:
- marginal is 35% federal, 9.3% state, 2.35% FICA
- mean is 24.74% federal and 8.06% state, 4.79% FICA.
> I can see that paying for 3 generations on one income can be hard.
Yes, most working class people have to care for 3 generations. Parents being wealthy enough to take care of their own retirement expenses is a small, small number. Working class people in their middle ages choosing to not have kids is also a small number.
LOL. Do you live in Mars?
If 300k is "barely livable", then how does a Starbucks barista make a living in SV?
Or by living in someone's backyard shed: https://news.stanford.edu/2021/05/04/revealing-complexities-...
Or by sharing one-bedroom apartments to split rent, and eating as little as possible, to afford closer housing and reduce commuting costs: https://www.reimaginerpe.org/20-2/Goldman
If you can't retire at 65 on 300k a year, you're not living a middle class lifestyle. Not even close.
Rent: 4k/month = 48k. Car payments 750/month = $9k. Using your post-tax numbers (which are wrong) that leaves over $100k per year for all the other random stuff you've listed, which is more than most people in the Bay Area make in a year.
(Also, you're math is wrong on the taxes; the rates you use are the statutory progressive rates, not the effective rates (so, for example, the effective rate on $300k would be approx 22% at the federal level assuming standard deduction but no retirement contributions or child credits). FICA is capped at the first $160k of income (meaning you don't pay more if you make more).)
If I set "max price" to 4k in Cupertino (random SV place) and 3+ bedrooms (2 kids), there's literally 8 results on Zillow.
Someone in the UK on £236K ($300K) currently takes home only 57%, and doesn't have access to 30 year fixed rate mortgage loans
Cigarettes I know. Marijuana is a bit funky, but it's easy because--by process of elimination--it's not a cancer stick. But now I have to squirrel away a third possibility.
Go on Zillow and find all the 3-bedroom rentals available under $4k/mo in the Bay Area that are within 45-min commute distance from downtown SF via Bart/Caltrain/Muni. I count at least 1,000.
I live in a modern 1-bedroom apartment within biking distance to work (major FAANG campus) and pay $2,500/mo. My apartment complex offers 3-bedroom units, with private patios, for $3,500/mo. This is a nice community, professionally managed, with pool, gym, BBQ areas and park for kids to roam around.
Isn't that enough to raise children? Most people in major European cities raise perfectly functional and happy families on much less sqft and amenities.
I honestly don't know what to say. If you really think 300K/year is barely livable then I hope someone in your family has a sit down with you and ask blunt questions about what the fuck you're doing with all that money.
That one is up to a 20% tax deduction on this year's income without spending any of this year's money. and it rolls forward 5 years if its value is greater than those percentages of your income. so it adds up if you keep incorporating that into your strategy.
I like this more than donating generally appreciated assets
B) Traditional 401k contribution, with W-2 salary this is up to $22,500 this year in most circumstances. But, the next part is important too for double tax deduction:
C) Borrow $50,000 from the 401k (assumes the 401k already had more money in it from prior years and good investments) and donate that $50,000 cash to the above non-profit. Borrowing from a 401k requires you to pay it back across an interval over 5 years. So in future years you're doing that + 401k contributions. Or paying it off whenever you want. Or just accepting the tax and 10% penalty. On years where you have a ton more deduction you might only be paying the 10% penalty if you chose not to repay your 401k.
So now lets add this up from a $300,000 base salary.
The government was originally looking at a $300,000 AGI to tax you on, but now you reduce this by
A) $60,000 B) $22,500 C) $50,000
so now they are only looking at a $167,500 AGI to tax you on, while you still have $167,500 + A) $60,000, so $227,500 cash. But you want to keep reducing that AGI from here.
Stop here if you're plan is to put cash in a bank account and never take any risk. This is probably already way too much for anybody addicted to conservative generic personal finance forums.
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D) I typically have some expenses for a side project or something intended to be profitable. The great thing about this is that it involves you buying things you already wanted to buy. if you're in tech that's consumer electronics, software licenses, good CPAs, lawyers, domains, subscriptions.
I'm being conservative when I say $30,000, but lets say you actually did an ad spend, the sky is the limit.
Your various side project pursuits just have to make revenue in 5 years to prove that its not a hobby. make an LLC for all of your various interests and get around to it making some money eventually.
For sake of this, you spent $30,000 of your own money (but realistically, all the banks offered you credit cards with high limits and you can float this balance for years too, and interest on business purchases can also be deducted, if you're not allergic to the mere concept of holding debt)
AGI: $137,500
E) did you get a mortgage yet? lots of deductions there on a highly leveraged asset. too many variables for this, but just the interest is deductible not the principle payments. you can play around with a lot here, such as paying interest up front to generate more tax deductions.
on a $2,000,000 property with a 30 year mortgage, let's assume another $30,000 in interest paid annually.
AGI: $107,500
F) was the mortgage on an investment property? investment property is also depreciably on its current assessed value divided by 27.5 (residential) or 39 (commercial). so, on a $2,000,000 property that's another $72,700 tax deduction every year.
AGI: $34,800
in conclusion with a "salary" or AGI of $34,808, according to SmartAsset.com for someone living in San Francisco, they would be on the hook for about $8,000 in taxes. This is effectively a 2.6% tax rate and you’ve already bought most of the consumptive goods you wanted to buy anyway and have plenty of cash left over for savings and investments.
not advice. I could go far more aggressive than that.
and you can use the last known price as well, the real beauty is that it is not volume weighted
so you get the last price for 1 of that thing, and use that to donate 1,000 of that thing to keep more of your cash, even if it was not possible to realize it for cash
(for the 20% deduction in my example that one relies on cost basis, unless the price has gone down, then its current value)
What complex do you live in?
I'm actually looking to move apartments, want something a bit more modern, and I'm seeing mostly 1-bedrooms for $3500 and 2-bedrooms for $4500 in south bay for anything modern (e.g. anything from Prometheus) and located in a safe area (e.g. not East Palo Alto).
I’ll take my former $150K in the burbs of Atlanta over $300k in the burbs any day.
And before the usual responses implying I’m disdaining what I can’t have, I current work for BigTech remotely.
How many people making the median income in San Francisco are living in a walkable area?
Car payments were calculated based on a 50k new car, so if he's paying more than that he definitely has a luxury car.
My guess is that the maligned commenter I replied to is of the other school of thought, that they want to retire in the same house in the same town
But since 2020, it became absolute misery.
I moved to NYC, and I’m much happier here. So your point about being in a walkable city still stands.
What sort of non-profit is this? Can you just register a 501(c)(3) with the sole purpose of giving yourself charity and then use it to pay for food and housing for yourself? Trying to honestly learn here as I have a massive W-2 tax bill.
> requires you to pay it back across an interval over 5 years. So in future years you're doing that
This sounds like you're just deferring tax to the next 5 years? Don't you have to use after-tax money to repay the 401k loan?
> Your various side project pursuits just have to make revenue in 5 years to prove that its not a hobby
My understanding of the IRS rule is you have to profit in 3 out of 5 consecutive years if you want to claim tax losses in the other 2 years. Not revenue. (IRC 183).
To put some real numbers on it.
My 30 year fixed 3.5% mortgage all in from 2016 - 2021 was $2185 and that included the FHA PMI since I only put 3.5% down. I refinanced in 2021 to a 15 year mortgage and bought points and got rid of the PMI. My house is now worth close to twice that.
My mortgage? 1.97% fixed 15 year - $2550 and $1575 of that goes toward principal. My total household expenses as of March 2020 when I was making “only” $150K with my wife working part time making $25K was around $6000. We were bringing home after taxes and before retirement savings about $10500 after maxing out my retirement savings it was about $9300 a month.
And if you haven’t noticed, people are moving away from the west coast and office occupancy is down - that doesn’t bode well for home prices long term.
Our lifestyle is a little different now (see below). But out of my base income which is still only $160K - and my wife no longer works -with the rest coming from RSUs, we still manage to pay all of our expenses and I’m able to max out my 401K.
(>>36306966 ).
I don’t think people who have been in the tech bubble understand how easy it is for a two income earning family to accumulate wealth where one is making your standard enterprise dev tech salaries in a major non west coast city.
Most couples I know our ages where one is a mid career developer also has a spouse working making at least $70K (the average salary of a college grad). You can do quite well in most cities with a household income of $220K.
If you’re younger and single making $135 to $170K - typical for a developer with 5 years of experience outside of the west coast - you can find an apartment or buy a condo in the city for $2500/month.
This isn't entirely accurate, as crack isn't the only drug people use "crack pipes" for. I couldn't tell you what, if anything, crack smells like because I'm not aware of having every been in the vicinity of it being consumed, but I have been around people using what look like crack pipes and I've used them myself too.
In my case: a few times I tried vaping weed with them (though for weed an electric dry herb vape is better, and if wanting to use glass pipe and a flame there are designed-for-weed vapes which are better than generic crack-type pipes), and DMT is another illegal drug that needs (when in pure form, rather than changa) to be vaped rather than smoked - so a crack pipe can be useful for that too. I wouldn't be surprised if there are other drugs that sort of pipe can be used for, too.
Personally I wouldn't use that sort of "crack" pipe in public, partly because many people think like you that it must be crack that's being used, and partly because even people who dont have that incorrect belief could still rightly (or at least, almost always rightly) deduce that something illegal is being consumed.
> And if you haven’t noticed, people are moving away from the west coast and office occupancy is down - that doesn’t bode well for home prices long term.
I wish, but it’s just a dream. The traffic is bad, rents are up, the housing market is insane. You are betting that the “it’s too crowded so no one comes here anymore” will regress so much that housing prices will drop, but that’s not how equilibriums work.
Everyone in our industry should be maxing out their 401k’s, no matter where they are living. However, those who survive in a HCOL will have a lot more assets and money at the end of it than a LCOL, simply because their house is worth more and they made more money (same percentage of savings even with higher expenses).
There are good reasons to live in an LCOL, especially if you like the place and you have friends and family there. But making more money overall than a HCOL isn’t one of them unless the jobs you can get in the HCOL don’t really pay much more than the LCOL (then get out of dodge as fast as you can).
Yes, everything here is just deferring. What you’re really doing is staggering the tax events across different years.
Like, it’s not important that something increases a tax footprint in year 5 if you have already planned on reducing tax footprints another way that year. More Net Operating Losses, more thing to carry forwards, more and bigger real estate depreciation, offsetting the increase in income.
Or eventually just paying taxes. Its not controversial to do.
Another aspect is the time value of money. With strategies like this you can go to your employer and file an exemption from employer withholding. So you get your full salary now instead of hoping for a tax refund next year , and that lets you employ these strategies at all and invest and live your life. Take a chance on having more capital gains, so you start getting taxed at the lower Long term capitals rate and phase out your W-2 work when this exceeds your income.
https://www.sfchronicle.com/politics/article/california-popu...
And house prices are declining in Seattle.
https://www.king5.com/article/money/economy/seattle-housing-...
Why live in a high cost city when more jobs are remote?
Again, this is a "It's too crowded so no one comes here anymore" problem, not a "California sucks, let's leave" problem. If you can't make it economically in SF or LA, move to somewhere like Atlanta where making it economically is easier. Housing prices fall a bit, from $2 million for a starter house to $1.9 million, but they just as quickly go back up as well. If you look at a population chart for California, you'll see this huge increase in the last 80 years that is finally tapering off. Did everyone honestly believe that California would or could grow forever? Equilibrium means that SF will shrink and grow around some stable population point.
> And house prices are declining in Seattle.
Read the article. They went up 20% last year and are now down 2-5% this year. And again, you are doing a lot of wishful thinking, since inventory is super low right now and people are struggling to buy houses even if they have the money. I actually wish your story was true, but it simply isn't.
> Why live in a high cost city when more jobs are remote?
I work remote in Seattle and love it (but my wife has to RTO, so we still need to be here). But I guess if someone isn't great at math, an LCOL city is probably a better choice anyways, since they don't have to think so hard about the math and can justify their choices with simple click-bait-style narratives.
So exactly how does it make more financial sense to live somewhere that is more expensive than somewhere much less expensive making the same money?
What’s the mortgage on that 2 million dollar home compared to mine?
And I’ve been to Seattle a number of times. That’s where my employer’s headquarters is located. It’s a dreary place.